CHOICE says GST debate should be based on facts not myths

Rush to remove GST ‘loophole’ risks cost-of-living pain

6 January 2015

CHOICE says the debate about charging GST on overseas purchases should be informed by evidence. Otherwise there is a risk of policies that simply punish Australian consumers for no overall community benefit.

The consumer group has taken aim at five myths about the so-called GST 'loophole' on overseas goods, and encouraged the Federal Government to maintain its considered approach to the issue.

“We support the approach of successive Federal Governments, which has been to investigate options for reducing the GST low-value threshold provided the benefits outweigh the costs, including the costs to consumers,” says Matt Levey, CHOICE Director of Campaigns and Communications.

“Unless there’s an overall community benefit, you’re simply punishing Australians with more cost of living pressure when they can least afford it,” Mr Levey says.

Five myths about the GST low value threshold:

Myth 1: It's a 'loophole' eroding tax revenue

“Parts of the retail industry refer to the $1,000 threshold for charging GST on overseas purchases as a ‘loophole’,”[1] Mr Levey says. “In fact it’s a rational decision to not spend more money collecting tax than would be raised from it. That’s why governments charge taxes – to raise revenue and benefit the community, not to prop up uncompetitive businesses.”[2] - MYTH BUSTED

Myth 2: Not lowering the threshold is costing thousands of local jobs

“Retail groups regularly claim that the GST threshold is costing thousands of jobs.[3] The thing is, no-one ever provides any credible evidence for this claim. And that’s probably because it’s not the reason most people shop online. - MYTH BUSTED

Myth 3: It’s the reason most people use overseas retailers

“The retailers’ argument assumes that Australians head overseas online to avoid paying the GST. For the vast majority, this is just not true. When CHOICE surveyed online shoppers, we found only 12% nominated saving on ‘duties and taxes by purchasing on overseas websites’ as a reason for shopping online.[4] The top reason Australians buy online is so they can shop at the times that suit them, followed closely by the convenience of getting products delivered to their door.”

“So it’s unlikely that a lower threshold would even achieve what local retailers want, especially when many overseas items like cosmetics and digital downloads are 50% less expensive in the US.” - MYTH BUSTED

Myth 4: We should just take the overseas approach

“One strategy for pretending a lower GST threshold will raise money is to outsource the collection costs to consumers. For example, retailers have called for Australia to adopt a similar approach to the UK, where the Royal Mail charges an £8 (A$15.17) collection fee for parcels that are liable for tax or customs.[5] If Australia’s GST threshold was lowered to, say, $20, this approach would turn a $20 parcel into $35 parcel before even applying GST. It would mean charging consumers $15 to collect $2 in tax. You don’t need a degree in economics to understand this approach would hurt consumers for no community benefit.” - MYTH BUSTED

Myth 5: It’s about improving competition

"As the Federal Government’s own review of competition policy recently reminded us, competition is about the long-term interests of consumers.[6] Good competition policy should not punish consumers by making one side less competitive, especially when we already face an unfair ‘Australia tax’ on so many products. If overseas retailers really do have “an enormous competitive advantage”[7] – as has been claimed – then we should look at the real reasons local retailers are struggling to hold their own.” - MYTH BUSTED

[1] For example, see http://www.retail.org.au/ArticleDetails/tabid/232/ArticleID/735/Low-value-GST-loophole-to-finally-be-addressed-in-2015.aspx

[2] “The LVIT loophole is costing thousands of retail jobs in Australia – a further 33, 000 jobs will be lost in 2015 in the discretionary retail sector, having already lost 80,000 jobs since 2007.” http://www.retail.org.au/ArticleDetails/tabid/232/ArticleID/735/Low-value-GST-loophole-to-finally-be-addressed-in-2015.aspx

[3] As summarised in a recent paper from the Australian Parliamentary Library, “Previous analysis suggests that removing the LVT (charging GST on all items) would have a very marginal negative impact on the economy overall, but would benefit the retail sector.” See http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/rp1415/OnlineShop#_Toc401927718